Cornerstones of Financial Accounting

4th Edition

ISBN: 9781337690881

Author: Jay Rich, Jeff Jones

Publisher: Cengage Learning

Not helpful? See similar books

Cornerstones of Financial Accounting

Long-term Liabilities. 100C

BusinessAccountingCornerstones of Financial AccountingLiabilities: Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan. To discuss: The validity of proposal to transfer the existing company’s loan to a special purpose entity.

Question

Chapter 9, Problem 100C

To determine

**Concept introduction:**

**Liabilities:**

Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan.

**To discuss:**

The validity of proposal to transfer the existing company’s loan to a special purpose entity.

Expert Solution & Answer

Cornerstones of Financial Accounting

4th Edition

ISBN: 9781337690881

Author: Jay Rich, Jeff Jones

Publisher: Cengage Learning

Not helpful? See similar books

Cornerstones of Financial Accounting

Long-term Liabilities. 100C

Similar questions

To this solution

Cornerstones of Financial Accounting

Ch. 9 - Prob. 1DQCh. 9 - Prob. 2DQCh. 9 - Prob. 3DQCh. 9 - Prob. 4DQCh. 9 - Prob. 5DQCh. 9 - Prob. 6DQCh. 9 - Prob. 7DQCh. 9 - Prob. 8DQCh. 9 - Prob. 9DQCh. 9 - Prob. 10DQ

Ch. 9 - Prob. 11DQCh. 9 - Prob. 12DQCh. 9 - Prob. 13DQCh. 9 - Prob. 14DQCh. 9 - Prob. 15DQCh. 9 - Prob. 16DQCh. 9 - Prob. 17DQCh. 9 - Prob. 18DQCh. 9 - Prob. 19DQCh. 9 - Prob. 20DQCh. 9 - Prob. 21DQCh. 9 - Prob. 22DQCh. 9 - Prob. 1MCQCh. 9 - Prob. 2MCQCh. 9 - Prob. 3MCQCh. 9 - Prob. 4MCQCh. 9 - Prob. 5MCQCh. 9 - Prob. 6MCQCh. 9 - Prob. 7MCQCh. 9 - Prob. 8MCQCh. 9 - Prob. 9MCQCh. 9 - Prob. 10MCQCh. 9 - Prob. 11MCQCh. 9 - Prob. 12MCQCh. 9 - Prob. 13MCQCh. 9 - Prob. 14MCQCh. 9 - Prob. 15MCQCh. 9 - Prob. 16MCQCh. 9 - Prob. 17MCQCh. 9 - Prob. 18MCQCh. 9 - Prob. 19MCQCh. 9 - Prob. 20MCQCh. 9 - Prob. 21MCQCh. 9 - Prob. 22CECh. 9 - Prob. 23CECh. 9 - Prob. 24CECh. 9 - Prob. 25CECh. 9 - Prob. 26CECh. 9 - Prob. 27CECh. 9 - Prob. 28CECh. 9 - Prob. 29CECh. 9 - Prob. 30CECh. 9 - Prob. 31CECh. 9 - Prob. 32CECh. 9 - Prob. 33CECh. 9 - Prob. 34CECh. 9 - Prob. 35CECh. 9 - Prob. 36CECh. 9 - Prob. 37CECh. 9 - Prob. 38CECh. 9 - Prob. 39CECh. 9 - Prob. 40CECh. 9 - Prob. 41CECh. 9 - Prob. 42CECh. 9 - Prob. 43CECh. 9 - Prob. 44BECh. 9 - Prob. 45BECh. 9 - Prob. 46BECh. 9 - Prob. 47BECh. 9 - Prob. 48BECh. 9 - Prob. 49BECh. 9 - Prob. 50BECh. 9 - Prob. 51BECh. 9 - Prob. 52BECh. 9 - Prob. 53BECh. 9 - Prob. 54BECh. 9 - Prob. 55BECh. 9 - Prob. 56BECh. 9 - Prob. 57BECh. 9 - Prob. 58BECh. 9 - Prob. 59BECh. 9 - Prob. 60BECh. 9 - Prob. 61BECh. 9 - Prob. 62BECh. 9 - Prob. 63BECh. 9 - Prob. 64BECh. 9 - Prob. 65BECh. 9 - Prob. 66ECh. 9 - Prob. 67ECh. 9 - Prob. 68ECh. 9 - Prob. 69ECh. 9 - Prob. 70ECh. 9 - Prob. 71ECh. 9 - Prob. 72ECh. 9 - Prob. 73ECh. 9 - Prob. 74ECh. 9 - Prob. 75ECh. 9 - Prob. 76ECh. 9 - Prob. 77ECh. 9 - Prob. 78ECh. 9 - Prob. 79ECh. 9 - Prob. 80ECh. 9 - Prob. 81ECh. 9 - Prob. 82ECh. 9 - Prob. 83ECh. 9 - Prob. 84ECh. 9 - Prob. 85ECh. 9 - Prob. 86ECh. 9 - Prob. 87ECh. 9 - Prob. 88ECh. 9 - Prob. 89ECh. 9 - Prob. 90ECh. 9 - Prob. 91PSACh. 9 - Prob. 92PSACh. 9 - Prob. 93PSACh. 9 - Prob. 94PSACh. 9 - Prob. 95PSACh. 9 - Prob. 96PSACh. 9 - Prob. 97PSACh. 9 - Prob. 98PSACh. 9 - Prob. 99PSACh. 9 - Prob. 91PSBCh. 9 - Prob. 92PSBCh. 9 - Prob. 93PSBCh. 9 - Prob. 94PSBCh. 9 - Prob. 95PSBCh. 9 - Prob. 96PSBCh. 9 - Prob. 97PSBCh. 9 - Prob. 98PSBCh. 9 - Prob. 99PSBCh. 9 - Prob. 100CCh. 9 - Prob. 101.1CCh. 9 - Prob. 101.2CCh. 9 - Prob. 102.1CCh. 9 - Prob. 102.2CCh. 9 - Prob. 102.3CCh. 9 - Prob. 102.4CCh. 9 - Prob. 103.1CCh. 9 - Prob. 103.2CCh. 9 - Prob. 103.3CCh. 9 - Prob. 103.4CCh. 9 - Prob. 104.1CCh. 9 - Prob. 104.2CCh. 9 - Prob. 104.3CCh. 9 - Prob. 104.4CCh. 9 - Prob. 105.1CCh. 9 - Prob. 105.2CCh. 9 - Prob. 105.3CCh. 9 - Prob. 105.4CCh. 9 - Prob. 105.5CCh. 9 - Prob. 105.6CCh. 9 - Prob. 105.7CCh. 9 - Prob. 106.1CCh. 9 - Prob. 106.2CCh. 9 - Prob. 106.3C

Knowledge Booster

Similar questions

21
Details for one of the loan of BB Company that is probably impaired during the period is as follows:
The company made a loan of P40,000,000 to a customer with similar credit risk to BB Company on January 1, 2021.
Interest is receivable on this loan at the end of each year at 2% per annum for the next five years.
The loan was properly recorded and classified as amortized cost.
The company made and initial assessment of the loan and the total expected credit losses over the life of the loan was P1,000,000. The discount rate applicable was at 2%.
On January 1, 2021, the probability of default over the next 12 months was 5%.
At December 31, 2021, there was a significant increase in the credit risk on the loan made by BB Company, the expert assessed that the total expected credit losses over the life of the loan was increase to P2,200,000. The discount rate applicable was at 2%.
How much is the balance of the allowance for credit losses as of December 31, 2021?

2. On December 31, 2012, Greendale 2 Corporation is experiencing extreme financial pressure and is in default in meeting interest payments on its long term note of P6,000,000 due on December 31, 2013. The interest rate is 10% payable every December 31. In an agreement with the creditor. Greendale Corporation obtained certain changes in the terms of the note as listed in the image below. What is Greendale Corporation's gain on debt restructuring? (Round off present value factors to four decimal places) *
•The accrued interest of P600,000 on December 31, 2012 is forgiven
•The principal is reduced by F1,000,000.
•The new interest rate is 12%.
•The new date of maturity is December 31, 2017.
At the time of restructuring, the stated rate of interest of the original obligation prevailed in the market for similar notes
a. P 1,979,180
b. P 1,600,000
c. P 1,221,020
d. P0

(Debtor/Creditor Entries for Settlement of Troubled Debt) Gottlieb Co. owes $199,800 to Ceballos Inc. The debt is a 10-year, 11% note. Because Gottlieb Co. is in financial trouble, Ceballos Inc. agrees to accept some land and cancel the entire debt. The property has a book value of $90,000 and a fair value of $140,000.Instructions(a) Prepare the journal entry on Gottlieb’s books for debt restructure.(b) Prepare the journal entry on Ceballos’s books for debt restructure.

121. Recently, Ohio Hospitals Inc. filed for bankruptcy. The firm wasreorganized as American Hospitals Inc., and the court permitted a newindenture on an outstanding bond issue to be put into effect. The issuehas 10 years to maturity and a coupon rate of 10 percent, paid annually.The new agreement allows the firm to pay no interest for 5 years. Then,interest payments will be resumed for the next 5 years. Finally, atmaturity (Year 10), the principal plus the interest that was not paidduring the first 5 years will be paid. However, no interest will bepaid on the deferred interest. If the required annual return is 20percent, what should the bonds sell for in the market today?a. $242.26b. $281.69c. $578.31d. $362.44e. $813.69

Problem 7:
Colt Company is indebted to Kent Company under an P8,000,000, 10% 4 – year note dated December 31,
2018. The interest of P800,000 was paid on December 31, 2019 and 2020.
During 2021, Colt Company experienced financial difficulties and is likely to default unless concessions are
made. On December 31, 2021 Kent Company agreed to restructuring the debt as follows:
a. Interest of P800,000 for 2021, due December 31, 2021 was made payable December 31, 2022.
b. Interest for 2022 was waived.
c. The principal amount was reduced to P7,000,000.
Required: Prepare the entry record the debt restructuring on the books Colt Company.
____________________________________________________________________

Eugene Wright is CFO of Caribbean Cruise Lines. The company offers luxury cruises. It’s near year-end, and Eugene is feeling kind of queasy. The economy is in a recession, and demand for luxury cruises is way down. Eugene doesn’t want the company’s current ratio to fall below the 1.0 minimum stated in its debt covenant with First Federal Bank. If the company reports a current ratio below 1.0 at year-end, First Federal may require immediate repayment of its $8 million loan, which is not due for another two years.At the end of the year, Caribbean Cruise Lines reports current assets of $10.1 million and current liabilities of $10 million. These amounts include advanced payments of $1 million from customers in December for cruises to be provided the following summer. Instead of treating the $1 million as deferred revenue, Eugene decided to count the cash received as revenue. He reasoned that cash has already been collected and the company has a long history of providing cruises, so…

Due to extreme financial difficulties, an entity negotiated a restructuring of 10%, P5,000,000 note payable due on December 31, 2X18. The unpaid interest on the note on such date is P500,000. The creditor agreed to reduce the face amount to P4,000,000, forgive the unpaid interest, reduce the interest rate to 8%, and extend the due date three (3) years from December 31, 2X18. The present value of 1 at 10% for three (3) periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for three (3) periods is 2.49.
Using the given information, answers the following items:
Under IFRS 9 Financial Instruments, what is the gain on extinguishment for 2X18?
What is the discount or premium on the new note payable on December 31, 2X18?
What amount should be reported as interest expense for 2X19?
What is the carrying amount of note payable on December 31, 2X19?

On December 31, 2012, Greendale Corporation is experiencing extreme financial pressure and is in default in meeting interest payments on its long-term note of P6,000,000 due on December 31, 2013. The interest rate is 10% payable every December 31. In an agreement with the creditor, Greendale Corporation obtained certain changes in the terms of the note as listed in the image below. What is Greendale Corporation’s gain on debt restructuring? (Round off present value factors to four decimal places)
a. P 1,979,180
b. P 1,600,000
c. P 1,221,020
d. P 0

(Based on Appendix 14B) Pratt Industries owes First National Bank $5 million but, due to financial difficulties,is unable to comply with the original terms of the loan. The bank agrees to settle the debt in exchange for landhaving a fair value of $3 million. The book value of the property on Pratt’s books is $2 million. For the reportingperiod in which the debt is settled, what amount(s) will Pratt report on its income statement in connection withthe troubled debt restructuring?

Kwell Co. owes Kuto Bank P4,000,000 plus accrued interest of P360,000. The unamortized discounton the loan is P80,000. The debt is a 10-year, 12% loan. During 20x1, Kwell’s business deteriorateddue to loss of demand for its services. On December 31, 20x1, Kuto Bank agrees to accept oldequipment and cancel the entire debt. The equipment has a cost of P12,000,000, accumulateddepreciation of P8,800,000 and fair value of P3,600,000. How much is the gain (loss) on theextinguishment of the debt?

3. Down Company has an overdue Notes Payable to City Bank of P8,000,000 and recorded accrued interest of P640,000 based on 8% interest rate. This rate of interest is presumed to be the market rate at the time of debt restructuring. As a result of a settlement on December 31, 2012, City Bank agreed to these restructuring arrangements: reduce the principal obligation to P6,000,000; forgive the P640,000 accrued interest; extend the maturity date to December 31, 2014; and annual interest of 10% is to be paid on December 31, 2013 and 2014.What is Down Company’s gain on debt restructuring? (Round off present value factors to four decimal places) *
a. P 2,640,000
b. P 2,426,220
c. P 1,440,000
d. P 0

Recommended textbooks for you

Cornerstones of Financial Accounting

Accounting

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Cengage Learning

Financial Reporting, Financial Statement Analysis...

Finance

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:Cengage Learning

Financial Accounting: The Impact on Decision Make...

Accounting

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Cengage Learning

Cornerstones of Financial Accounting

Accounting

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Cengage Learning

Financial Reporting, Financial Statement Analysis...

Finance

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:Cengage Learning

Financial Accounting: The Impact on Decision Make...

Accounting

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Cengage Learning